A collection of observations, news and resources on the changing nature of innovation, technology, leadership, and other subjects.

August 13, 2007

Leadership and Management Skills in the Knowledge Economy

I am getting ready to teach a new graduate seminar at MIT this fall - Technology-based Business Transformation. In this course, I will examine how to leverage emerging, disruptive technologies to significantly transform a business or even a whole industry. Since the Internet is arguably the quintessential example of such a major transformative technology, I will illustrate our discussions in the seminar with the concrete lessons we learned from IBM’s e-business initiative in the second half of the 1990s, and in particular, with my personal experiences as general manager of the Internet Division during this period.

The course will cover in detail the key areas involved in bringing complex technologies like the Internet to market, including strategy formulation and execution as well as organizational and cultural issues. But in addition, I want to spend considerable time discussing technical and management leadership questions. What kinds of skills do we want engineers and managers to have in order to not only develop new products and services in the lab, but ensure that the proper strategies and organizations are in place to make them successful in the marketplace? How do they learn the kinds of leadership skills needed to rally the whole company behind a major new initiative, - top management as well as employees across the organization, - without whose support it would be practically impossible to succeed in executing a sophisticated, disruptive market strategy?

Rubin and Dierdorff concluded that there was a significant gap between the skills that businesses are looking for, and the skills being taught in business schools. What companies generally want from MBA programs are graduates with people-oriented skills who are good at leadership, communication and innovation. However, students frequently complain that such soft skills will not get them the kinds of jobs they want, and so they pressure the business schools to offer them courses that are functional, analytical or technical in nature. While the authors' study focused primarily on MBA programs, I am sure that similar such skill gaps can be found in graduate programs in engineering and other disciplines.

I am not surprised by the results of this study. We are in the midst of a historical transition from the industrial economy of the past couple of hundred years to a knowledge-based economy. Advances in information technologies and the Internet, as well as the intensely competitive global markets around us are among the major forces propelling this transition.

I strongly believe that technical talent is more important than ever, given that technology is increasingly permeating all aspects of business, society and our personal lives. The Internet is enabling us to now build highly sophisticated, globally integrated, IT-based businesses, industries and economies. To manage such projects, we need people with excellent command of the kind of hard skills we associate with engineering, such as design, analysis and simulation.

However, the nature of the problems we can now address and solve, and the kinds of systems and applications we can now design and build are quite different from what they were in the past. In the industrial economy we have primarily applied technology and engineering to back-end tasks. Product excellence and competitive costs are key to such back stage activities, which tend to focus on specialization, standardization and automation.

The front-end, market-facing, people-oriented tasks have been primarily handled with labor intensive services. The service sector of the economy accounts for more than 75% of the labor force in the US and the UK, while the industrial sector accounts for around 20% and agriculture is in low single digits. In Japan, Germany and France services are more than two thirds of the labor force, and in Brazil, Russia and South Korea they are well over fifty percent. While huge progress has been made in the productivity of the industrial and agricultural sectors, the service sector has lagged far behind.

This is all changing in our emerging knowledge economy. We now have the ability to apply technology and engineering to these front-end tasks so that we can significantly improve their productivity and quality. Given the huge size of the service economy, companies around the world recognize that the biggest opportunities for innovation, competitive advantage, revenue growth and decent profits will increasingly be found in such front-end, market-facing systems, applications and integrated solutions.

Market-facing systems are intrinsically collaborative and interdisciplinary. While they require people with very solid technical competence, they also require them to have a good understanding of business and management, so the technologies can be successfully brought to market. Furthermore, because of their complexity and interdisciplinary nature, most such problems can only be attacked with a team of people possessing a variety of skills. It is essential that the people working in such teams, let alone the team leaders and managers, have good leadership, communications and interpersonal skills.

So it is not a question of whether engineers and managers should excel primarily in soft or hard skills. Given that interdisciplinary competencies are central to innovation and competitiveness, companies want their top hires to be proficient in both. This is particularly true of graduates with advanced degrees, since such interdisciplinary skills require solid preparation as well as a certain level of maturity.

Above all, in order to leverage emerging, disruptive technologies to successfully launch a new business or transform an existing one, you need people with the ability to analyze and solve problems, even ones they never saw before as well as being able to quickly bring to market new products, services and integrated solutions of all kinds. These kinds of talents - however we classify them - are more important than ever, given the increasingly complex, fast changing, competitive world we live in.

Engineers are specialists.
The better specialists they are, the less they integrate.
Managers are integrating specialists.
These need to be integrated by specialized integrators (these are the ones who integrate not only within the organization, but between it, and the environment, too...including customers)
And last, but of course not least there is the main integrator,
who integrates all these players.

"You" need all these players in an organization...depending on your own role within it, you need some more than others.

But first of all you need the right organization where everybody is positioned where they should be, doing what they should be.

In such an organization innovation is a side effect

Naturally mechanical best practices alone (without the right organization, without the right amount of integration) do not breed innovation.